Masters Degrees (Finance)

Permanent URI for this collectionhttps://hdl.handle.net/10413/16535

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An analysis of share prices and economic activity in South Africa: an NARDL approach.
(2021) Naidoo, Thiasha.; Moores-Pitt, Peter Brian Denton.
An integral component of economic activity rests on the performance of share prices as it influences consumer and business confidence which in turn affects the performance of the overall economy. The progressive characteristics of share prices and its successive role as an indicator of economic growth has been widely documented in advanced and developing economies such as South Africa but with evidence allowing for nonlinearity and asymmetric movements, being less predominant. The key objective of this thesis is to re-examine an existing issue by using a more complex method of analysis to determine whether fluctuations in the stock market influence the economic growth in South Africa. This study assesses share price fluctuations and its impact on economic growth, with the aim of identifying the nonlinearity and asymmetric effects in the relationship by taking into consideration a primary and sectoral analysis, within a South African context. As such, this study utilised various different methodological techniques that established cointegration; identified the existence of structural breaks; detected long and short-run relationships and determined the effects of nonlinearity and asymmetric adjustments between the stock market and economic activity, covering the period of 1999 to 2019. It was established that the relationship between economic growth and stock prices exhibit evidence of structural breaks. Furthermore, it was concluded that there is a strong link between the stock market and economic activity with the 2007/2008 global financial crisis. Most importantly, this thesis intended to determine the nonlinearity and asymmetric impacts that stock market fluctuations have on economic activity in South Africa. It was exhibited that there is evidence of strong nonlinear cointegration in the relationship. Additionally, there is a strong presence of nonlinearity and asymmetric adjustment in the relationship between stock market fluctuations and economic activity. Therefore, this study concluded that there is strong evidence of nonlinearity and asymmetric adjustment in the cointegrating relationship and depicted that economic growth is sensitive to stock market fluctuations in South Africa, which represents a novel contribution to the literature.
The impact of foreign ownership on firm performance: evidence from South Africa.
(2020) Naidu, Delane Deborah.; Charteris, Ailie Heather.; Moores-Pitt, Peter Brian Denton.
The inflow of Foreign Direct Investment (FDI) is an important source of finance for South Africa. The South African government continuously attempts to attract more FDI to improve economic growth. Several studies have examined the determinants and effects of FDI at a macroeconomic level in South Africa, but very little research has analysed the effects of FDI at a microeconomic level, where the focus is on firm performance. Foreign ownership sourced from FDI can have both direct and spillover (indirect) effects on firm performance. The absence of evidence regarding the effect of foreign ownership on firm performance raises questions about the impact of FDI at the firm-level in South Africa. Hence, this study seeks to determine the direct and horizontal spillover effects of foreign ownership on the financial performance of firms listed on the Johannesburg Stock Exchange (JSE). This study uses panel data for non-financial firms listed on the JSE, covering the seven-year period from 2012 to 2018. The system Generalized Method of Moments (GMM) approach is employed to estimate the relationship as it accounts for endogeneity, simultaneity and unobserved heterogeneity, thus ensuring unbiased results. Firm performance is measured with Return on Assets (ROA), Return on Equity (ROE) and Tobin’s Q. The results for the direct effects vary across performance measures, with a non-linear effect of foreign ownership identified only when ROE is used. The findings show that foreign ownership has a positive effect on ROE at levels of foreign ownership below 40.1% but a negative effect at higher levels of foreign ownership. No evidence of horizontal spillovers are found for any performance measures. The implications of these findings are discussed along with recommendations for future research.
Residential property as a hedge against inflation in South Africa.
(2021) Ramsaran, Nikita.; Moores-Pitt, Peter Brian Denton.
The empirical evidence regarding the magnitude of the relationship between inflation and residential property has had conflicting results. Although the issue of inflation-hedging has been discussed by multiple authors, the results have been inconsistent with regard to the ability of property to act as a hedge against inflation. This topic has been explored largely in an international context, with limited studies on South African grounds. Over the years the topic of inflation-hedging has been examined using multiple cointegration techniques, which have been adapted over the years to accommodate various limitations. The conventional Autoregressive Distributive Lag (ARDL) model has been a solid model for the purpose of this topic as it has proven to have various advantages over other models. However, this model assumes linearity and symmetry with regard to the relationship. In order to overcome the limitations of this model, the Nonlinear Autoregressive Distributive Lag (NARDL) model was developed, as it accounts for possible asymmetric adjustment. Both these models were employed for the purpose of this study with the intent of determining whether the relationship between the variables is nonlinear and asymmetric. This study utilized quarterly data for a 30-year time period from 1989-2019, a period which was extremely relevant in the context of South African history, because of the transition period from the apartheid regime. The data chosen for the inflation rate is represented by the consumer price index (CPI) and housing prices was represented by both the housing price index (HPI), as well as segmented housing prices. The results from this study confirmed that property is able to hedge against inflation, with strong evidence supporting the existence of an asymmetric relationship between the variables. All segments were confirmed to effectively hedge against inflation, with only the affordable segment being a partial hedge for the purpose of the NARDL model. Evidence of asymmetry was confirmed, indicating that when inflation increases, housing prices increase at a rate greater than unity. However, in periods of decreasing inflation, the increase in absolute value is far greater. Investors can, therefore, profit off investing in property during all inflationary periods, and generate greater wealth in periods of decreased inflation.
The risk-return relationship and volatility feedback in South Africa: a nonparametric Bayesian approach.
(2020) Dwarika, Nitesha.; Moores-Pitt, Peter Brian Denton.; Chifurira, Retius.
The risk-return relationship is a fundamental concept in finance and economic theory and is also known as the “first fundamental law” in finance. Traditionally, the risk-return relationship is known to help assist individuals in the construction of an efficient portfolio where a desired risk and return profile is tailored to their needs. However, it is a source of much more valuable information to various market participants such as bankers, investors, policy makers and researchers alike. There are a number of investment strategies, policy frameworks, theories and asset pricing models built on the empirical result of the risk-return relationship. Hence, the topic of the risk-return relationship is of broad importance. It has been widely investigated on an international scale, especially by developed markets from as early as the 1950's, with the primary motive being to help market participants optimise their chance to earn higher returns. According to conventional economic theory, the relationship between risk and return is a positive and linear relationship – the higher the risk, the higher the return. However, there are many studies documented in literature which show a positive or negative or no relationship at all. As a result, due to the magnitude of conflicting results over the years, this has caused an international and local debate to arise regarding the risk-return relationship. International studies have explored a number of theories and models to attempt resolving the inconclusive empirical backing of the risk-return relationship. On the other hand, the methods employed by South African studies and the volume of literature on the topic is relatively limited. South Africa is becoming increasingly more recognised, liberalised, interactive and integrated into the international economy. Therefore, this study makes a significant contribution from a South African market perspective. This study identifies volatility feedback, a stronger measure of regular volatility, as an important source of asymmetry to take into account when investigating the risk-return relationship. Given that South Africa is an emerging market which is subject to higher levels of volatility, one would expect the presence of this mechanism to be more pronounced. Thus, this study investigates the risk-return relationship once volatility feedback is taken into account by its magnitude in the South African market. A valuable contribution of this study is the introduction of the novel concept “asymmetric returns exposure” which refers to the risk that arises from the asymmetric nature of returns. This measure has a certain level of uncertainty attached to it due to its latent and stochastic nature. As a result, it may be ineffectively accounted for by existing parametric methods such as regression analysis and GARCH type models which are prone to model misspecification. The results of this study are presented according to the robustness of the approaches in the build up to the final result. First, the GARCH approach is employed and consists of a symmetric and asymmetric GARCH type models. The GARCH approach is treated as a preliminary test to investigate the presence of risk-return relationship and volatility feedback, respectively. While the GARCH type models have the ability to take into account the volatile nature of returns, asymmetries and nonlinearities remain uncaptured by the probability distributions governing the model innovations. Thus, the results of the GARCH type models are inconsistent and not statistically sound. This motivates the use of a more robust method, namely, the Bayesian approach which consists of a parametric and nonparametric Bayesian model. The Bayesian approach has the ability to average out sources of uncertainty and measurement errors and thus effectively account for “asymmetric returns exposure”. The test results of both the parametric and nonparametric Bayesian model find that volatility feedback has an insignificant effect in the South African market. Consequently, the risk-return relationship is estimated free from empirical distortions that result from volatility feedback. The result of the parametric Bayesian model is a positive and linear relationship, in line with traditional theoretical expectations. However, it is noteworthy that in the context of this study that the nonparametric approach is highlighted over the parametric approach. The nonparametric approach has the ability to adjust for model misspecifications and effectively account for stochastic, asymmetric and latent properties. It has the ability to take into account an infinite number of higher moment asymmetric forms of the risk-return relationship. Thus, the nonparametric Bayesian model estimates the actual fundamental nature of the data free from any predetermined assumptions or bias. According to the nonparametric Bayesian model, the final result of this study is no relationship between risk and return, in line with early South African studies.

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Browsing Masters Degrees (Finance) by Author "Moores-Pitt, Peter Brian Denton."